2009-VIL-343-ITAT-MUM
Equivalent Citation: [2010] 35 SOT 135 (MUM.)
Income Tax Appellate Tribunal MUMBAI
IT APPEAL NO. 2133 (MUM.) OF 2008
Date: 12.08.2009
ARPANNA DEVELOPMENT CORPN.
Vs
INCOME-TAX OFFICER 20(1) (1), MUMBAI
BENCH
D. MANMOHAN AND D. KARUNAKARA RAO, JJ.
JUDGMENT
D. Karunakara Rao, Accountant Member. - This is the appeal by the assessee against the order of the CIT(A)-XX, dated 25-10-2008. The grounds in the appeal are as under:—
“1. The ld. CIT(A) erred in confirming penalty levied by the ITO under section 271(1)(c) of the Income-tax Act, 1961 amounting to Rs. 50,41,777.
2. Without prejudice to the above, the ld. CIT(A) ought to have appreciated that the material column in the Penalty Notice was left blank by the ITO to show that the assessee has concealed any particulars of income and/or filed inaccurate particulars of income and hence the said Notice is invalid in law and void ab initio.
3. Without prejudice to the above, the ld. CIT(A) failed to appreciate that the assessee was under bona fide belief that its claim under section 80-IB(10) may not be allowed by the Department in future assessment proceedings and hence the same was withdrawn to buy peace and avoid litigation subject to non-levy of penalty under section 271(1)(c) of the Income-tax Act, 1961.
4. Without prejudice to the above, the ld. CIT(A) failed to appreciate that to claim deduction under section 80-IB(10) of the Act, the appellant had filed all the particulars and had complied with all the necessary conditions and hence was under a genuine belief that its claim was properly made at the time of filing its original Return of income.
5. The ld. CIT(A) ought to have appreciated that withdrawal of claim under section 80-IB(10) by filing Revised Return after survey proceedings does not automatically follow that the deduction claimed under section 80-IB in original Return of income was not a bona fide claim.
6. The ld. CIT(A) ought to have appreciated that it was a clear case of difference of opinion between the authorities and the assessee with regard to the issue of deduction under section 80-IB(10) of the Income-tax Act, 1961 and hence it was clearly outside the scope of Explanation to section 271(1)(c) of the Income-tax Act, 1961.
7. The ld. CIT (A) failed to appreciate that the survey party had only prima facie belief that the appellant had made a wrong claim without having any concrete material to show that the appellant’s claim was false.
8. The ld. CIT(A), while confirming penalty, relied on the provisions of Chapter XIX-A of the IT Act, 1961 (relating to Settlement of cases), which are not relevant to the appellant’s case.” [Emphasis supplied]
2. Briefly stated, relevant facts of the case are that the assessee is engaged in the business of construction of residential flats. Assessee filed return of income on 31-10-2005 declaring Nil income after claiming deduction of Rs. 1,37,78,175 under section 80-IB(10) of the Income-tax Act, 1961. Subsequently, there was a survey action under section 133A of the 1961 Act on 9-3-2006 at the office premises of the assessee for the purpose of verifying the assessee’s claim under section 80-IB(10) of the Act. The findings of the survey include that the housing project in question did not fulfil the requisite conditions laid down in section 80-IB(10) with regard to commencement the project and size of residential flats. Survey team found out that the original proposal for project is dated prior to 1-10-1998 and 6 of the flats are merged into three larger flats. When this was brought to the notice of the partners, Mr. Pratik Malkan and his father, they agreed to withdraw the said claim of deduction made in the original return of income. Accordingly, they offered a sum of Rs. 1,37,78,174 for tax and requested for taking a lenient view in matters of penalty under section 271(1)(c) of the Act. Pursuant to this, a revised return was filed on 13-3-2006. The assessment was completed under section 143(3) on 28-3-2007 determining the total income at Rs. 1,43,06,580, which includes the sum of Rs. 1,37,78,174 declared by the assessee during the survey proceedings. Thus, the issue reached finally on quantum matters. Penalty proceedings were initiated under section 271(1)(c) for furnishing inaccurate particulars by way of claim of deduction under section 80-IB(10) and for making false claim in the original return of income and the assessee was asked to submit its explanation. In the response, it was submitted that as recorded by Mr. Pratik Malkan in his statement recorded under section 131 during the survey, the assessee was not fully conversant with the requirements and that the discrepancies occurred without any intention to defraud the revenue. Assessee referred to the fact that he complied with the promises was made by him during the survey in matters of withdrawal of the claim of deduction under section 80-IA(1), filing of revising return and payment of all tax liabilities. It was also pointed out that assessee requested for taking a lenient view in the matter of levy of penalty. On considering the above explanation of the assessee the Assessing Officer did not accept the same for the reason that the assessee withdrew the claim of deduction under section 80-IA(10) only after the survey action was carried out and the assessee was cornered by the findings of the survey. The assessee’s plea of ignorance about requirements was also not accepted in view of the fact that the assessee was a builder and developer for many years and he had the assistance of the experts in making and filing the return of income. Accordingly, the Assessing Officer held that the assessee filed inaccurate particulars of income and made false claim under section 80-IB(10). Thus, penalty of Rs. 50,41,577 at the rate of 100 per cent of the tax sought to be evaded was levied as penalty under section 271(1)(c) of the Act.
3. Aggrieved with the same, the assessee filed an appeal before the CIT (A) and reiterated the submissions, which were made before the Assessing Officer. Further, it was particularly emphasized that the claim was made under the genuine belief that all the conditions for the claim are duly complied with in general and the conditions relating to the issues of (i) date of commencement of the project and (ii) built-up area of the flats constructed, in particular. Referring the events during the survey proceedings, the assessee submitted that the revenue authorities repeatedly harped on the point that the IOD for the project was obtained on 8-8-1994 and therefore, the date of commencement of the project is prior to 1-10-1998. In the process, the officers failed to consider the fact that 16-5-2001 is actual date of commencement of the project and on the said date only assessee got the revalidation done by concerned authorities. Referr-ing to the other issue of non-fulfilment of the condition relating to the built-up area of few of flats, the assessee submitted that there are total 144 flats in the building and that there were no alterations in the remaining 138 flats. Assessee submitted that despite the possibility of two views in the matter, the assessee agreed to withdraw the claim during the survey proceedings only to avoid litigation and to buy peace. Reference was also made to judicial pronouncements that a liberal view is to be taken in favour of the assessee why granting deductions under section 80-IB(10). It was also pointed out that the Assessing Officer did not bring on record any material or evidence on the basis of which it could be concluded that the assessee concealed income or furnished inaccurate particulars of income. It was also submitted that the assessee withdrew the claim of deduction in spirit of co-operation and in anticipation that the Income-tax Department would not initiate penalty proceedings considering the request of the assessee. Assessee relied on various Apex Court judgments in his favour. Thus, the assessee’s main plank of defence is that the act of withdrawal of claim under section 80-IB(10) is voluntary and it was done to buy peace and avoid protected litigation with the revenue. The CIT (A) analysed the events that led to the disclosure, timing of the filing of the revise return, the circumstances of survey operation and other details discussed in Para 2.3-1 to Para 3.33 of the impugned order, and finally concluded stating that this is a fit case for levy of penalty. Accordingly, he confirmed the penalty levied by the Assessing Officer.
4. Aggrieved with the same, the assessee filed an appeal before the Tribunal. During the assessment proceedings, the Learned Counsel narrated the factual event and relied on various pages filed before us. The counsel mentioned that eventually, the survey under section 133A has resulted in the discovery of a couple of disputed observations, i.e., (i) with regard to date of commencement of the project and (ii) built-up area of few flats is found to be more than the permitted area of 1000 sq.ft. Referring to the first observation of the revenue authorities on the issue of date of commencement of the project, the counsel stated that the revenue erroneously taken into account the date of disapproval of the project instead of considering the fact actual date of commencement is 16-5-2001, the date of revalidation. In this regard, ld. Counsel referred to page 6 of the paper book, the letter of Corporation authorities dated 9-1-1995 to demonstrate that the project was permitted to commence but actually, the commencement of the project took place only in the year 2001. The Learned Counsel summed up stating that a commencement certificate revalidated on 16-5-2001 which is subsequent to 1-10-1998, therefore, no condition in this regard is violated. The said project was completed on 31-3-2005 i.e., in time allowed under the statute. Regarding the second observation relating to the built-up area issue of few flats in question, the counsel referred to page 7A to state that the build-up area of alleged flats is still below 1000 sq.ft. Further, as per the Counsel size of the plot on which the project is developed is 3 acres of land and built-up area of flats is 1000 sq.ft. or less in all the flats including the alleged three combined flats.
5. Emphasizing on the voluntary act of assessee, the counsel argued stating that the assessee agreed with the above observations of the revenue authorities, despite the fact such admission are not in the interest of the assessee and withdrew the alleged claim by filing the valid revised return of income and paid taxes. It was done only to buy peace and to avoid protracted litigation. The fact that the assessee had a room for disputing the issues before the legal forums should be given a due credit at this point of time and the fact that the assessee gave up such right of disputing before the appellate forums only to buy peace must also be taken in consideration. Further, the Counsel relied on pages 3 and 10 of the sworn statement which are placed at page 10 of the paper book and highlighted to fact that the declaration to withdraw the claim under section 80-IB(1) was voluntary act. Further, the Counsel also relied on page 22 of the paper book to show that the revise return of income was filed leaving a note mentioning that deduction under section 80-IB(10) was voluntarily withdrawn with a request and understanding that no penalty proceedings would be initiated against the assessee. Further, he took us through assessee’s submissions dated 14-8-2007, placed at pages 30 to 44 of the paper book and argued stating that the penalty should not be levied in this case. The Counsel also filed various orders of the Tribunal such as, AVR Prasad v. ITO [2005] 97 ITD 325 (Hyd.), K. Deedar Ahmed v. ITO [2005] 97 ITD 240 (Hyd.), Telebuild Construction (P.) Ltd. v. Asstt. CIT [2007] 13 SOT 218 (Mum.), Harnam Singh Bishan Singh Jewellers (P.) Ltd. v. Asstt. CIT [2000] 69 TTJ (Delhi) 14, Atul J. Joshi v. ITO [2005] 4 SOT 515 (Mum.), Prakash Chand Nahar v. ITO [2007] 110 TTJ (Jodh.) 886 to advance his case. These judgments also suggest that the event of survey operation leading to the disclosure of additional income in general or withdrawal of any statutory claims in particular itself do not indicate that the penal provisions are attracted.
6. Referring to the legal proposition in existence at this point of time, the counsel argued stating that there are large number of Tribunal orders in favour of the assessee on matters of date of commencement of the projects involving the revalidation of the disapproved proposals as well as on the disputes relating to built-up area of the three merged flats. Thus, the Ld. Counsel summed up stating that there is no violation on the issue of date of commencement of the project and on the issue of violation of the condition relating to built-up area of 3 merged flats, the matter is not free from dispute or debate in the absence of legal definitions for the phrases such as ‘built-up area’ in the Act. Withdrawing the claims of deduction and payment of taxes in compliance of the sworn statement, despite the scope for litigation, need to be considered as an act of compliance to the law and also as an act of bona fide belief. The fact that the assessee withdrew the claim and paid taxes despite the likely chance of winning in the appeal, if contested, may also be taken into account while deciding the appeal.
7. Per contra, the DR for the revenue made the following arguments and they are: (i) originally, the assessee made a claim of deduction under section 80-IA(10) knowing very well he had undertaken the merger of 6 flats in violation of specified limits of built-up area of 1000 sq.ft. and also the original date of commencement of the project, (ii) but for the survey operation under section 133A of the Act, the above deviations would not have come open and to that extent the particulars are concealed, (iii) the partner of the assessee agreed to the above observations and agree to withdraw the claim of deduction under the circumstances of discovery of evidence against the assessee, (iv) there is nothing called ‘conditional’ disclosure of additional income under the provisions of Income-tax Act and the Assessing Officer is not empowered with such authority. Request for lenient approach in matters of penalty provisions emphasizing on the concepts of ‘bona fide’ belief and ‘to buy peace and to avoid litigation’ are the usual requests of the assessee under the given circumstances of the case. Thus, as per the DR, the assessee made a wrong claim originally, which was discovered by the survey team and said discoveries are accepted by the assessee under the circumstances of no return. This is neither the case of bona fide belief nor act of voluntary disclosure. Regarding the case law cited by the Ld. Counsel, the DR mentioned that they are distinguishable on facts. The DR requested the Bench to take note of the fact that Ld. Counsel has now attempted to make out a disputable issue out of the mergered flats, when the merger to 6 flats into 3 big flats is a fact discovered as a result of the survey and the fact that the built-up area of the said flats after merger is not 1000 sq.ft. or below. Otherwise, this fact was concealed for the department. Therefore, assessee cannot claim that he cannot be alleged to be a defaulter in matters of disclosure of information to the department.
8. We have heard the parties and perused the records available before us. All the citations relied on by the parties have also been gone considered. In brief, as evident from the grounds of appeal as well as the arguments of ld. counsel, the case of the assessee is that it should not be a fit case for levy of penalty as the claims in the original return of income are made under bona fide belief, the issues in question are disputed and debatable ones, the act of disclosure and filing the revised return and payment of taxes reflects the voluntariness of the assessee to buy peace and to avoid protracted litigation and they are supported by various judgments as described above. On the contrary, the case of the revenue is the assessee’s claim in the original return is cannot be bona fide as he is aware of the fact of merger of the flats and assessee would not have withdrawn the claim but for the survey action and the outcome of the same. Further, there is nothing like conditional disclosure. Further, the request for lenient approach in matters of penalty provisions emphasizing on the concepts of ‘bona fide’ belief and ‘to buy peace and to avoid litigation’ are the usual requests of the assessee under the given circumstances of the case. As per the DR, the assessee made a wrong claim originally, which was discovered by the survey team and said discoveries are accepted by the assessee under the circumstances of no return. This is neither the case of bona fide belief nor act of voluntary disclosure.
9. For adjudicating the grounds under consideration, we need to consider the evidences and strength of such evidences collected by the revenue on one side and the legal position on the other side. So far as the said evidences are concern, the revenue relies on (i) the information available on the letter of IOD relating to the date of commencement of the housing project and the non-fulfilment of the condition specified in clause (a) of section 80-IB(10) and (ii) the information gathered by way of irrefutable sworn statements from the flat owners, which are affirmed by the partners of the assessee relating to the non-fulfilment of the condition specified in clause (c) of section 80-IB(10) relating to size of the residential unit. Regarding the date of commencement of the project, it is a decided issue that what is required to be seen in the provisions of section 80-IB(10)(a) is the ‘development and construction’ of housing project. The dates on the commencement certificate may be indicative of such commencement of the ‘development and construction’ and such dates do not the deciding factor for the purpose of deciding the date of commencement of ‘development and construction’ of housing project. What is required to be seen is the date of development and construction. It is also important to observe that the ‘development’ and ‘construction’ of the housing project must commence after 1-10-1998 as the words ‘development’ and ‘construction’ are conjoined by the word ‘and’ as evident from the clause (a) of sub-section (10) of section 80-IB, which reads that “Such undertaking has commenced or commences development and construction of housing project on or after 1st day of October 1998. . . .” [Emphasis supplied]. Therefore, the date of the commencement certificate or the date of revalidation of the commencement certificate does not decide the issue. Moreover, there is nothing on record to suggest that factually, the “development and construction” of the housing project commenced prior to 1-10-1998 to make the assessee ineligible for the benefits of section 80-IB(10) of the Act. Therefore, this basis of the revenue for the levy of penalty is not apprecia-ted. By inference, we agree with the arguments of the Learned Counsel in this regard.
10. The other basis for the levy of penalty relates to the information gathered by the survey team by way of sworn statements of three flat owners as affirmed by the partners of the firm relating to the size of the residential units. During the survey action, the survey party visited the following three flat owners, namely, (i) Kruti Bimla Desai (flats 403 and 404 of A wing), Mr. Neil D’Silva (209 and 210 of the C Wing) and Mrs. Lata Kamal Padia (409 and 410 of the C Wing) and found that the said units are constructed out of merger of 6 units. Survey party also recorded the sworn statements from them, who admitted that the merged units purchased by them are the ones, where two smaller units are merged by altering the original units in violation of the originally approved plan submitted to the concern Authorities. They also confirmed that the assessee has done the requisite alteration works in matters of the merger of the alleged residential units. These statements, when put to the assessee, the assessee affirmed the same and prayed for not asking more question on the subject and admitted to withdraw the claim of deduction under section 80-IB(10).
11. In view of the importance, the relevant questions and answers from the sworn statement dated 9-3-2006 of Shri Pratik Malkan are reproduced below :
“Q.16. I am showing you the statement of Mrs. Lata Kamal Padia, resident of flat No. C 409/410, Kamala Ashis (Daga) Project, Building No 3, recorded during the course of survey proceedings today. Please read the statement and confirm that you have read the statement fully.
A. Yes, I confirm that I have read the statement of Mrs. Lata Kamal Padia, shown by you.
Q.17 In the above statement of Mrs. Lata Kamal Padia, she has stated in reply to question Nos. 4 and 6, that the alteration of walls was done by the builder, i.e., M/s. Arpanna Development Corporation. Please confirm the correctness of her statement, and whether such a change is in accordance with the approved plan.
A. Yes, I confirm the correctness of her statement and that such alteration done by us is not in accordance with the approved plan. However, as I have already decided to forego my claim of deduction under section 80-IB, I request you not to pose any further question on this.
Q.18 I am showing you the statement of Mr. Neil D’Silva, resident of flat No. C-209/210, Kamala Ashis (Daga) project, Building No. 3, recorded during the course of survey proceedings today. Please read the statement and confirm that you have read the statement fully.
A. Yes, I confirm that I have read the statement of Mr. Neil D’Silva, shown by you.
Q.19 In the above statement of Mr. Neil D’Silva, he stated in reply to question Nos. 2 and 6, that alteration of walls was done by the builder, i.e., M/s. Arpanna Development Corporation. Please confirm the correctness of his statement, and whether such a change is in accordance with the approved plan.
A. Yes, I confirm the correctness of his statement and that such alteration done by us is not in accordance with the approved plan. However, you may kindly note that I have already decided to forego my claim of deduction under section 80-IB.
Q.20 I am showing you the statement of Ms. Kruti Bimla Desai, resident of flat No. A-403/404, Kamala Ashis (Daga) project, Building No. 3, recorded during the course of survey proceedings today. Please read the statement and confirm that you have read the statement fully.
A. Yes, I confirm that I have read the statement of Ms. Kruti Bimal Desai, shown by you.
Q.21 In the above statement of Ms. Kruti Bimla Desai, she has stated in reply to question No. 6, that the alteration of walls was done by the builder, i.e., M/s. Arpanna Development Corporation. Please confirm the correctness of his statement, and whether such a change is in accordance with the approved plan.
A. Yes, I confirm the correctness of her statement and that such alteration done by us is not in accordance with the approved plan. Hence, I have stated to you in my earlier questions itself that I have decided to forego my claim of deduction under section 80-IB.” [Emphasis supplied]
12. Thus, the information gathered by the survey team confirms that everything is not well with the housing project in question. At least, 6 residential units of the housing project are merged into 3 units and in our opinion, the same is done with prior knowledge of the assessee. In fact, the assessee accepted the fact that such merger of residential units is not in accordance with the approved plan. As seen from the above statement of Shri Pratik Malkan the partner of the assessee, the same is affirmed by other partner, Shri Arvind Malkan (Father of Shri Pratik Malkan). This information gathered by the survey team have evidentiary value and it adequately throws some light on the intention of the assessee in matters of the claim of deduction under section 80-IB(10). Now we proceed to discuss the assessee’s contention on the issue of the size of the residential units.
13. There is no dispute on the size of the rest of the 138 residential units of the housing project and dispute is restricted to mere 6 of such units. The counsel argued that the each of these units have the ‘saleable , carpet and built-up’ areas of 535 sq.ft., 390 sq.ft. and 461 sq.ft. respectively. Considering the merger of two of units, the ‘saleable, carpet and built-up’ of each merged unit will have 1070 sq.ft., 780 sq.ft. and 922 sq.ft. respectively. Thus, the non-fulfilment of condition at clause (c) arises only if saleable area is considered. We have considered the above and find that the Act provides for the definition of ‘built-up area’ in clause (a) of section 80-IB(14) and it reads that “built-up area means the inner measurements of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units;”. Thus what is to be considered for the purpose of the clause (c) of section 80-IB(10) is the ‘built-up area’. The perusal of the orders of the revenue do not indicate relevant facts on this issue, whether the saleable area and the built-up area are one and the same or different. Relevant facts on this issue are essential to adjudicate, if the assessee has violated relevant condition at clause (c) relating to the size of the residential unit.
14. Thus, we find there is no issue about the profits of the housing project so far as 138 units are concerned and the penalty issue is now restricted to the profits of the 6 units under dispute. However, the same is conditioned by the requirement of facts on the built-up area figures as specified in clause (a) of section 80-IB(14). For the purpose of deciding on the figures of the built-up area, the matter has to go to the files of the Assessing Officer. Assessing Officer is directed to garner the requisite facts after giving reasonable opportunity of being heard to the assessee and the assessee is directed to provide relevant details to the Assessing Officer to demonstrate that the saleable area is different from the built-up area and the built-up area of each merged unit is below 1000 sq.ft. as per the provisions of clause (a) of section 80-IB(14). Thus, this part of the ground is set aside.
15. Regarding citations relied on by the Counsel, we agree with the Counsel’s argument that the survey action followed by some disclosure of income cannot in itself invite the penalty provisions, when there is no material to substantiate the concealment. However, in the instant case, considering the above information with regard to 6 residential units, it cannot be held that the present case is merely a case of withdrawal of the deduction under section 80-IB(10) without any incriminating material to suggest the concealment. Regarding the arguments on the conditional surrender of income, it is noticed that the case of the assessee is not a case of conditional withdrawal of deduction under section 80-IB as the language used in the statement/note only reflects mere request for non-initiating the penalties and request for leniency in the penalty matters. Under these circumstances, we are of the opinion that the assessee invites the levy of penalty under section 271(1)(c) insofar as the income on the said six residential units are concerned. This decision is relevant only in case if the assessee failed to prove that the built-up area of the three merged flats confirms the specifications of the said definition. Otherwise, there is no case for the revenue. Accordingly, the grounds of the appeal are set aside.
16. In the result, appeal of the assessee is allowed for statistical purposes.
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